Eric Sprott on the wild week in markets (Weekly Wrap-up, March 2, 2018)

Transcript:

Announcer: You're listening to the "Weekly Wrap-Up" on Sprott Money News.

Craig: Well, greetings once again from Sprott Money News and sprottmoney.com. It's Friday, the 2nd of March, 2018, and this is your "Weekly Wrap-Up." I'm your host, Craig Hemke, and joining us, as usual, is Eric Sprott himself. Eric, good morning.

Eric: Hey, Craig. Lots of crazy things going on, so we've got lots to talk about.

Craig: Boy, there's no doubt about that. You know, and one reminder before we get started. Last week, we talked about RRSP season in Canada and how that deadline was approaching. And now it has come and gone, but for our American listeners, the IRA season is still upon us. And hopefully most American listeners know that they can buy gold and silver in their IRA and that Sprott Money and a company called New Direction have teamed up to help assist American listeners in purchasing and storing precious metals within your self-directed IRA. It's easy, it's seamless, and you can further diversify by storing in depositories around the United States and Canada. The deadline, of course, is April 15th, so you gotta call 888-861-0775, or check out sprottmoney.com for more details.

Yeah, good time to be buying physical, Eric. Let's start there. I picked up a note this week from that Small Gold website that India, the country of India, for all of 2017, imported 901 metric tons of gold. In just 2017. That's up 55% from 2016. What do you make of that number?

Eric: Well, it's a big, big number. There's a number out there of gold production, ex-China, ex-Russia because they don't export, of a total of 2200 tons a year. So for India to buy 900 of those 2200 tons is absolutely incredible. And I think the World Gold Council, all of '17, was estimating some really weak number for Indian demand. And that number of 900, it's shocking, although logical. And how they can supply it all, goodness knows. Because, between the Chinese demand, the Indian demand, the Russian demand... I mean, thank god people in the West aren't buying coins, right? I mean, the price would be going absolutely crazy if they were actually buying physical gold and silver over here. But stunning number.

And there was one other number. They showed the Chinese silver imports in January, and they were 493 tons, up 85% year-over-year. So, again, a stunning, kind of, change. And if I could round it to 500, that's about 6000 tons a year in a, I think, 28,000-ton market. So that's the imports. Plus, they produce their own, as well. So there's some big buyers out there of precious metals. None of them in the Western nations, other than Germany, of course. But I'd say the demand is pretty rock solid here.

Craig: You mentioned Western demand, Eric. And, of course, that is largely determined by price here in the West. We don't want anything if it's going down. We only want it if it's going up. And that has not been the case with gold this week. Actually, for the last couple of weeks. But it's started to turn around a little bit yesterday. What do you think of price here?

Eric: Well, it's interesting. On that same theme, Craig, I'll tell you two things that are going down, bonds and stocks. And they're going down pretty hard, okay? And bonds are in a bear market. I mean, we're in a serious correction in the stock market here. I think people will, you know, pause, thinking about stocks. And, of course, every day we read about how extreme everything is in terms of valuations in the market and so on and so forth. And, of course, we all ignore it until all of a sudden it starts falling apart. And then I think we pretty quickly connect the dots and say, "You know what? It should have fallen apart, and there's lots of reasons for it to go lower."

And I find it really interesting that, now we've had the cryptocurrencies crash, the bond market's in a bear market. Now we've got the stock market really looking vulnerable. They're, like, really vulnerable. And I was most impressed by the recovery in gold yesterday and, so far today, the little increase while the Dow was getting hammered. And that's what we wanna see. We wanna see the precious metals at least hanging in there when all about us are getting hammered, okay? That's really why we're in it. And on a relative basis, I mean, we're doing incredibly well just by holding our own here. But if we could ever get a little bit of momentum into the one group that's kind of going up this year, we'll be off to the races.

Craig: Yeah, you mentioned whether gold will rally or fall. That's always on people's minds. Because if they were in the space 10 years ago, they recall that, as the great financial crisis began, gold went down from $1000 down to $700 before eventually turning with all of the "extraordinary measures" that the central banks were taking. You know, we kind of saw gold fall with the stock market in early February, too. What would you expect? If we did get into a 20% correction, 25% drop in equities, what would you expect to happen, Eric? I know that's on a lot of folks' minds.

Eric: I would expect the precious metals to go up. I mean, it's been a lagging group since 2011, right? I mean, we've really done nothing as everything else in the world has gone up, every asset class. And now that you, kind of, have almost all those asset classes failing and you're looking around, "Well, where can I go here?" I gotta think that gold, the precious metals, the physical, and the stocks are gonna catch a bid here. And they're incredibly cheap on any basis you wanna use, okay? Profitability, cash flow, net asset value, that sort of thing.

So I think they're gonna catch a bid here. You know, I've been a consistent buyer. I think there's lots of opportunity in the gold stocks. So I'm really pleased that gold was able to rebound yesterday, as the market really took a hammering in the afternoon and gold rallied very strongly. And I'm glad to see it rallying this morning as we're speaking and the Dow's down over 300 points yet again. So, looks pretty good.

Craig: Yeah, you know, a lot of this, at least at this point, they're blaming these new trade policies that Trump is rolling out. You know, he appointed a guy just last year even, but when he was just getting started, a guy by the name of Peter Navarro, to his trade council. And now he's making him the Chief Trade Advisor. And Peter Navarro has written books with titles like "Death By China" and "The Coming China Wars." All of a sudden, we're talking what looks to be a trade war. Any way that you can global trade wars playing out as...

Eric: Well, I don't think they're ever a positive. In fact, I saw an article on Zero Hedge where the U.S. put a tariff on steel back in 2004, no, 2003, I think it was, and the market went down 30%. And the tariff didn't make it through the whole year. And I would imagine, you know, we have to wait and see what the repercussions are gonna be. I mean, there's no doubt that the U.S. economy has suffered for a long, long, long time by the lack of anyone trying to protect industry in the country. I mean, I feel sorry for people who rely on factories and manufacturing things to survive because there's been absolutely no care for that area. I mean, everything's become financial. You know, as long as you can squeeze more beeps out of somebody, the world is good, supposedly. But it's been bad, okay?

So you do need a little bit of a strengthening of the trade policies, but, you know, what's the effect on the stock market? Like, it would be good for jobs to have tariffs. The stock market? A totally different question. There will be outcomes in other countries, I think, as reactions to this. And I think we all know collectively that nobody wins a trade war. So that's the why I would probably characterize it.

Craig: Yeah. And I guess where I'm going with that is, you know, it takes two sides to have a war, right, as you famously said. If that's where we're headed and other countries slap stuff back on the U.S., how is that good for the global economy and how does that potentially upset this whole narrative of, you know, four to five rate hikes this year? And the Bank of Japan was talking about eliminating some of their QE over night. I mean, come on, seriously?

Eric: Well, I mean, the whole narrative of this supposedly strong economic recovery, it's all built on the back of central bank easing, okay? Who's kidding who? And you can't reverse that and still expect things to be normal. They're not gonna be normal. We've already seen it, for example, in housing prices, I think, for January or February it came out, in probably January, anyway, down something like 4.7%. We see the GDP in the fourth quarter was weak again. I mean, we see the GDP now forecast of the Atlanta Fed was 5.2% at one time. Now it's 2.5%. Probably because the guy had the numbers reversed in the first one by mistake. So it went from 5.2% to 2.5%. Gee, how did they make that mistake?

Craig: Oops.

Eric: Yeah, oops. So I think the whole narrative of things being strong is a hoax because it can't stay strong if there's nobody out there buying the securities and the bonds and things like that. So rates are gonna go higher here and, you know, the markets are gonna pay.

Craig: All right, Eric. One last question, and this is just, kind of, I guess, a broad topic. You know, prior to yesterday, all of us sat and watched the mining shares just get the snot kicked out of them again this week, making new lows for the last 12 months in some of them. Now, granted, they're getting deeply oversold. But Eric, what's the deal? I mean, you run a company at Kirkland Lake that's doing great, we should mention. I mean, it's definitely going the opposite direction of the rest. But if you're a mining company and you've survived the last five years, isn't your balance sheet pretty trim at this point? I mean, aren't you making money at $1300 gold? I mean, why aren't people buying these stocks?

Eric: Well, it might have to do with manipulation...

Craig: Maybe, yeah.

Eric: ...would be my first thought. You know, I mean, the gold stocks do weird things. I mean, you might have the price of gold down 0.2% and the stocks go down 2%. I mean, it's ridiculous. And it's so irrational. And to think that, you know, the price of gold's up, goodness, almost $300 from the low here. I mean, most guys' earnings would have doubled from there, and yet the stock prices are where they were at previous lows. So the market just is not paying any heed to it because we're in this wonderful bull market for stocks which looks like it's over, by the way. And when the world comes to figure out that it might be over, I think they'll start looking at the precious metal equities again.

And there's a good reason to think it might be over in the way the U.S. dollar rallied all of a sudden. They did a huge reversal yesterday. It's weak today. I don't know why anyone would have much confidence in that currency, to be honest. And I've said it probably 100 times on our chats that the one thing I feel most secure about is that the U.S. government's broke. And it's gonna play out. I mean, and it could have disastrous consequences, but it's gonna play out. I mean, everything's underfunded.

So why would we think the currency is strong? I mean, and thank god they're comparing it to other lousy currencies. But it's, like, the longer-run outlook. And yes, we all can say, you know, "I wanna stay in the market," the fear of missing out, you know? Well, you know, maybe there's no fear of missing out anymore. Probably the fear is being in now because we're seeing some pretty dramatic declines in stocks these days.

Craig: Right. And maybe, Eric, we'll actually get back to that old paradigm from, like, 20 years ago. You know, there were growth stocks. There were value stocks. There was even growth at a reasonable price. You remember that term? If we get away from this extreme growth of wanting the FANGs, maybe people will return to, kind of, value and see value in the gold mining shares.

Eric: And there is value in the shares. We know that because we know their fundamentals are better. So, you know, it won't take much to turn 'em over. So we have that to look forward to.

Craig: We do. And we also have to look forward to next Friday, when we get the next installment of the U.S. employment report. So that'll give us something to talk about then. But for now, I think we'll just go back to watching the stock market and watching gold and getting ready for the weekend. Eric, thank you so much for your time.

Eric: Okay, Craig. All the best. You have a great weekend.

Craig: And from all of us here at Sprott Money News and sprottmoney.com, thank you for listening. Have a great weekend.